Chief Executive Steve Ballmer on Thursday defended Microsoft's need to make heavy investments in its Internet businesses but said the company was "done," for now, with pursuing Yahoo. "There's nothing under discussion between the two of us," Ballmer told investors of how six months of various talks had reached an impasse earlier in July.

"We had a set of principles, we talked about them, it didn't work out," he said. "Fine, we're done. We can move on."

The message for Microsoft's annual meeting with Wall Street analysts.

Ballmer also said that Microsoft should "to embrace the internet online opportunity and invest in that."

Seeking to show momentum in its existing Internet business, Microsoft announced that it had expanded its existing pact with Facebook, the world's largest social networking site, to provide Web search and search advertising in addition to its existing deal to run graphical display ads on Facebook pages.

The expanded Facebook deal would be implemented in the next few months, and it will be limited to Facebook's U.S. pages. The pact builds on a deal in which Microsoft invested $240 million last October in Facebook for a 1.6 percent stake, valuing the company at $15 billion.